It’s not just that much welfare spending has become bloated, unfair and
sometimes outright corrupt, it is also that it is no longer economically
affordable.

So how did Mr Nasty – aka George Osborne – do? I give the Chancellor a qualified thumbs-up for his party conference speech, even if the word “growth” was almost as absent from his rhetoric as “deficit” was last week from Ed Milliband. Osborne is as unforthcoming on how to get the economy growing again as the Labour leader is on dealing with our debts.

But in choosing to focus so strongly on the need for welfare reform, the Chancellor put his finger on the nub of the problem, not just for Britain, but for virtually all advanced economies.

It’s not just that much welfare spending has become bloated, unfair and sometimes outright corrupt, it is also that it is no longer economically affordable. Osborne couched his case in highly political terms, as you might expect after the latest British Social Attitudes survey.

This showed a high degree of public support for further cuts in welfare spending. Where once the Tories were regarded as cruel and heartless for wanting to slash benefits, it now seems that they can’t be tough enough. Politically, Osborne is therefore pushing at an open door when he says this is not just about saving money – it’s about fairness and enterprise.

How can we justify the incomes of those out of work rising faster than the incomes of those in work, he asks, or giving flats to young people who have never worked when working people twice their age still have to live with their parents because they cannot afford a separate home?

More emotively still, he asked how it was possible to justify a system where people in work have to consider the costs of having another child, while those who are out of work don’t. By raising these questions, Osborne gives voice to a strongly populist message, but he also speaks to an underlying, economic imperative – advanced economies are long past the stage of being able to afford such largesse.

In his speech, Osborne was aiming only at the easy political targets of entitlement spending – for want of a better term, the “social scroungers”, or those who choose welfare over work. The savings that can be made here are certainly not to be sneezed at. Looking at those areas of welfare spending which grew most strongly under the last government, they were things like housing benefit and other forms of income support.

Yet they are dwarfed by healthcare and pensions spending, and it is these entitlements which pose the biggest challenge for the future.

As it happens, Britain is rather better placed than many of its European peers in this regard. On pensions spending, the age of entitlement is already being raised, and will in future continue to rise in line with life expectancy. The per capita cost of the pensions promise is thereby capped.

The same is not true of health and long-term care, the costs of which will grow rapidly as society ages. Relatively favourable demographics make these costs less of a problem for Britain than they are for much of the rest of Europe.

Recent projections aired by Fabio Pammolli, professor of economics at the IMT Institute for Advanced Studies, show quite shocking levels of exposure. If there wasn’t already enough to worry about in Europe’s fiscal meltdown, these forecasts point to destruction of the very foundations of the European social market economy. Taking into account the expected decrease in fertility and mortality rates, the burden on active workers of healthcare and pensions spending is expected to grow over the next 20 years to 63.5pc of GDP per capita in Italy, 61.6pc in France, and 53.3pc in Germany.

Favourable demographics mean that by comparison, the projected UK burden is relatively small at just 38.7pc. Yet it is still quite high enough.

As is only too apparent, much of Europe is incapable of supporting its present pensions and healthcare promise. Herb Stein, one time economic adviser to President Nixon, famously remarked that if something cannot go on for ever, it will stop.

In Europe, stopping is going to make the present outbreak of economic, social and political instability over deficit reduction look like a stroll in the park. We are only in the very early stages of Europe’s wider fiscal crisis. There is still much worse to come, regardless of whether the euro survives or not.

It might be said in defence of the single currency that it has at least forced countries to make a start on the sort of structural reform that one way or another is bound to come.

Well possibly, but you see very little evidence of such reforms in France – on the contrary, France seems to be haring off in the other direction as fast as it possibly can – and ultimately, it will be the euro that gets the blame for the stultifying effect the present policy mix of fiscal and monetary austerity is having on growth. Eventually, it will break under the pressure.

In its latest World Economic Outlook, the IMF concedes that one of the reasons it has been over-estimating growth prospects for Europe is that short-term fiscal multipliers have been bigger than expected. This is just a complicated way of saying that when everyone is cutting all at the same time, the effect is almost bound to be self-defeating. Lack of growth will cause deficits to increase regardless.

It is hard to find a single chief executive who is interested in serious investment on mainland Europe right now. For all the reasons highlighted, the place is regarded as too toxic to touch. The future of the euro is just one among a mountain of negatives.

All of which means that Osborne can expect little or no help from the Continent in his efforts to get on top of Britain’s own debts. Europe is set on a five to 10-year period of nil growth, falling living standards and brutally disappointed expectations. All that Europeans can look forward to once the present phase of austerity comes to an end is yet more austerity.

Is there anything the Chancellor can do to help himself? Belatedly, he seems now at least to be attacking the right targets. I’ve been a supporter of the broad outline of the Government’s deficit reduction strategy, but there is no doubt that front-end loading the consolidation with tax increases and swingeing cuts in capital spending has damaged growth badly and therefore steepened the climb back to health.

The Coalition went for the easy hits, rather than the really difficult, long-term stuff. This has not served either the Government or the economy well.

Osborne rejected the case for tax cuts yesterday, but actually, putting money back in people’s pockets is the best thing he could do to support demand and give the British economy a fighting chance against the winds blowing in from Europe.

To be effective, such tax cuts cannot be temporary, but must be permanent, and therefore funded with far more draconian action on welfare than we have seen to date. Cameron and Osborne need to ask themselves just three questions. What are they in government for? Is it compromise and defeat? Or reform, growth and a sustainable future?